Wednesday, September 17, 2008

"Sorry" Isn't Good Enough

Three babies are dead, 1,327 are in hospital – 158 with severe kidney failure – and 6,244 infants have been sickened so far, after having been fed melamine-adulterated baby milk formula. 

Melamine is an industrial chemical and is not a permitted food additive. It apparently was added to watered-down milk supplied to San Lu and other Chinese dairy companies so that the diluted milk would not fail a standard protein content test. Melamine cannot be distinguished from protein in standard lab tests; its presence produces a falsely high protein content reading. 

In response to the health emergency, the Chinese government conducted an urgent inspection of all 109 domestic milk powder producers. Sixty-nine out of 491 batches tested by the government have been found to contain melamine. 

The 69 contaminated batches were produced by 22 different companies – 20% of the country's milk powder producers. The highest melamine concentration, 2,563 mg/Kg, was discovered in a sample of San Lu milk powder. Positive samples from other milk powder companies contained far less melamine –  from 0.09 mg/Kg to 619 mg/Kg.

China has arrested four suspects at this stage in its investigation – all of them milk dealers who supplied San Lu. An additional 22 people have been detained for questioning.

The scandal has prompted a flurry of news releases – from companies announcing recalls, from companies announcing that their milk was melamine-free, from foreign companies who hold a stake in a Chinese dairy company, and from the Chinese government.

  • Synutra International Inc. announced a recall of its U-Smart milk powder, while pointing out that the melamine content of its product was "only" 150 mg/Kg, compared to San Lu's 2,563 mg/Kg. The company also announced a precautionary recall of all products manufactured using milk from Heibei and Inner Mongolia, the two regions implicated in the melamine adulteration.
  • Yayi International Inc., and Emerald Dairy Inc. both announced that their samples had passed the government's tests, and both companies reaffirmed their commitments to quality and safety.
  • Arla Foods, a Swedish dairy company advised that its Chinese joint-venture partner, Mengniu Dairy, was caught up in the scandal. Three Mengniu products tested positive for melamine. Arla announced that the adulterated milk powder was being recalled and production had been halted at the Mengniu facility. And Mengniu suspended trading in its stock on the Hong Kong stock exchange on Wednesday, but gave no explanation for its action.
  • The Hong Kong Centre for Food Safety reported having detected melamine in a Natural Choice yogurt-flavored ice cream bar, produced by Shanghai Yili AB Foods. CFS suggested that the ice cream may have been contaminated by utensils used during manufacture. The contaminated product is being recalled.
  • And Fonterra – the New Zealand partner of San Lu, the Chinese company in the center of the storm –  announced the recall of ANMUM Materna brand prenatal milk. There have been no illnesses linked to this product. It was, however, also manufactured and distributed by San Lu.

The formal apologies are piling up. The chairwoman and general manager of San Lu Group has been fired, and the vice secretary of the Shijazhuang Municipal Committee has been removed from his post.

China placed great emphasis, in the months and weeks leading up to the Olympic games, on its advances in food safety regulation. The Chinese government promised a food-safe Olympic games. And it delivered on that promise. Aside from one or two very minor incidents, there were no reports of food poisoning among the athletes and officials who participated in the games.

But it's hard not to wonder whether San Lu's management dragged its feet in responding to the melamine situation. As we reported on Monday, San Lu management reported the problem to its Board of Directors on August 2nd – 6 days before the Olympic Games opening ceremonies. Yet the company decided against a public recall, despite Fonterra's attempts to convince San Lu that a public recall was necessary. 

Another major food adulteration scandal just before the opening of the Olympic Games would have caused a major loss of face for the Chinese government. And nothing is more important than face. 

A senior marketing lecturer at Massey University in New Zealand offered the opinion that Fonterra had no choice but to adapt to Chinese traditional ways if it wanted to continue doing business in that country. 

"You don't want to go public," Henry Chung told the New Zealand Herald, "unless it is absolutely necessary. It's face saving that is a key issue in doing business in China."

Unfortunately, in an effort to save face, Fonterra, San Lu, and a number of Chinese government officials broke faith with the most helpless segment of the Chinese population – nursing babies. 

"Sorry" isn't good enough. Words are cheap. Actions are what count.

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